Much of the credit research in Europe today looks like equity analysis with a little event risk evaluation tacked on. It has a quantitative basis: a dozen or so standard cash-flow ratios and some balance-sheet analysis are used to analyze a company’s ability to service its debt. This process differs little from that employed by the rating agencies, though it will probably be done more frequently. On top of that, analysts put their qualitative analysis of market and sector conditions – the impact on a company’s business of a proposed acquisition or new regulations, say – and come up with a forecast of changes in a bond’s spread.
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